A Kentucky Qualified Subchapter-S Trust for the Benefit of a Child with a Crummy Trust Agreement is a specialized type of trust designed to provide tax benefits for the Granter while ensuring the financial well-being of a child beneficiary. This type of trust combines elements of a Qualified Subchapter-S Trust (SST) and a Crummy Trust to achieve its objectives. A Qualified Subchapter-S Trust is a trust specifically created to hold S corporation stock, allowing the trust to qualify as an S Corporation shareholder. S Corporations, also known as Subchapter-S Corporations, are a specific type of small business entity that provides significant tax advantages. By utilizing an SST, the income and tax benefits of the S Corporation stock can flow directly to the trust's beneficiary. In the case of a Kentucky SST for the Benefit of a Child, the trust is established to benefit a child as the primary beneficiary. The trust is set up in a way that allows the child to receive distributions from the income generated by the SST. This arrangement ensures that the child's financial needs are met while also taking advantage of the favorable tax treatment conferred by the S Corporation stock. A Crummy Trust Agreement is an additional component of the Kentucky SST for the Benefit of a Child, named after the landmark court case Crummy v. Commissioner. This trust agreement allows the trustee to provide the child beneficiary with limited withdrawal rights, usually to withdraw gifts made to the trust. By giving the beneficiary the power to withdraw funds, usually within a specified timeframe, the trust is considered a present interest trust, eligible for the annual gift tax exclusion. There are no specific subtypes or variations of a Kentucky Qualified Subchapter-S Trust for the Benefit of a Child with a Crummy Trust Agreement. However, it is important to note that each trust can be customized to suit the unique needs and preferences of the Granter and the intended beneficiary. The terms and provisions of the trust can vary based on factors such as the age of the child beneficiary, the financial goals of the Granter, and any particular circumstances or considerations of the family. In summary, a Kentucky Qualified Subchapter-S Trust for the Benefit of a Child with a Crummy Trust Agreement combines the tax benefits of a Qualified Subchapter-S Trust with the flexibility and gifting advantages of a Crummy Trust. By utilizing this trust structure, the Granter can efficiently transfer S Corporation stock to benefit their child while simultaneously minimizing tax liabilities and ensuring the child's financial well-being.
Kentucky Qualified Subchapter-S Trust for Benefit of Child with Crummey Trust Agreement
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FAQ
An electing small business trust (ESBT) within the meaning of section 1361(e) is treated as two separate trusts for purposes of chapter 1 of the Internal Revenue Code. The portion of an ESBT that consists of stock in one or more S corporations is treated as one trust.
A beneficiary will normally be a natural person, but it is perfectly possible to have a company as the beneficiary of a trust, and this often happens in sophisticated commercial transaction structures.
The main difference between an ESBT and a QSST is that an ESBT may have multiple income beneficiaries, and the trust does not have to distribute all income. Unlike with the QSST, the trustee, rather than the beneficiary, must make the election.
However, in an S Corporation when the owner dies, the shareholder heirs only receive a step-up of basis in the corporate stock equal to the fair market value of the company at the date of death.
678 trust (because the surviving spouse does not own the corpus). A QTIP trust can be drafted, however, to meet the QSST requirements. Both the QSST and the QTIP trust require the current distribution of all income to the surviving spouse as the current income beneficiary.
Testamentary trusts. This trust type is established by your will. It's an eligible S corporation shareholder for up to two years after the transfer and then must either distribute the stock to an eligible shareholder or qualify as a QSST or ESBT.
The QSST may be useful for estate planning purposes. It may also be useful for holding S stock for the benefit of a minor or incompetent. Individuals, estates, and certain trusts are subject to a net investment income tax, which is an additional tax of 3.8%.
A Qualified Subchapter S Trust, commonly referred to as a QSST Election, or a Q-Sub election, is a Qualified Subchapter S Subsidiary Election made on behalf of a trust that retains ownership as the shareholder of an S corporation, a corporation in the United States which votes to be taxed.
Since a revocable trust is not treated as separate from the grantor, it is an eligible S corporation shareholder while the grantor is alive.
Thus, if a grantor wants to leave S corp stock to a trust for her family members after her death without terminating the company's election, the trust must qualify either as an electing small business trust (ESBT) or as a qualified subchapter s trust (QSST).